CASINO

(Don’t Fear) the corona virus reaper, more Macau-bell!

TAGs: China, Coronavirus, Macau

When I hear the word “corona,” I think of five things in the following order from the most emotional and exciting to the most boring and inconsequential:

1) The Parker Solar Probe, the first ever spacecraft to fly into the sun’s corona
2) My Sharona by The Knack
3) My Bologna by Weird Al Yankovic
4) Overpriced uninspired Mexican beer
5) The Wuhan coronavirus

dont-fear-the-coronavirus-reaper-more-macau-bell-featYou may think that absurd, me being such a doomsday zombie apocalypse sky-is-constantly-falling prepper sort of finance guy. That I am, and I embrace it, but that doesn’t mean I automatically latch on to every headline predicting the end of the world and run into the middle of the street screaming in my underwear. The torrent of alarmist headlines and pictures of people in hazmat suits and videos of collapsing doctors and all the rest I’m seeing about what looks to be a highly contagious yet relatively mild flu-like thing look to me to be totally whacked out of all proportion. I frequent apocalyptic-leaning finance sites all the time. I’m part of that crowd. But this is too much.

Don’t go plowing full positions into Macau stocks immediately though. There could still be significant downside as panic grows. The Chinese New Year bump is now off the table so earnings will be affected. Visitor volumes could continue to plummet, and Macau may still shut down completely if Beijing totally freaks out. More travel links could be cut. Hong Kong already is. Quarantines will dampen the Chinese economy for sure, at least in the short term, etc. etc. Important to grasp though is that most of the damage to Macau and global stock markets generally will be due to the reaction to the virus rather than the virus itself. Once the panic is over, Macau stocks will likely slingshot right back up.

To paraphrase Christopher Walken, “The world’s got a coronavirus fever, and the only prescription…is more Macau-bell!”

We’ll go into how to trade the dip short term in a second. First, here’s why the panic looks, at least at this point, to be totally overblown.

The average mortality rate for the common flu each year since 2010 is about 0.13%. This, according to Centers for Disease Control and Prevention estimates. The officially calculated mortality rate of this coronavirus is about 3%. That’s much higher, but consider this, now the second numbered list in this article with some statistical whatnots and immuno-biology stuff I do know a little bit about:

1. The hospitalization rate for the average flu is about 0.18% by the CDC numbers, which is 33% higher than the death rate. That would translate to a hospitalization rate so far for this virus of about of 4%, meaning something like 96% of people with this virus until now have not been going to the hospital and are therefore currently totally undetected by the officials making the official calculations scaring everyone out of their minds. But now that everyone is totally losing it, everyone in Wuhan with a fever and a cough is going to run to the emergency room thinking they’re about to die and many, many more cases of this thing are going to be detected and stuffed into the official statistics. But proportionally, no more are going to succumb to coronavirus than have already. Meaning, the official mortality rate is going to plummet as the days pass, maybe even close to the levels of the common flu. The only big difference is that this one appears to spread faster and is much more contagious.

2. This is an old report by now but according the SCMP, about half of the fatalities are elderly. The youngest was 48. The 48-year-old was already sick with something else at the time. In any case, the generally accepted cutoff to be considered immunocompromised by age is 45. Meaning, the mortality rate for people with normally functioning immune systems is close to zero.

3. Peak flu season is February. (See chart below from the CDC.) The coronavirus outbreak began late. It should be over soon. Like a flame with too much fuel, the faster it spreads, the faster it burns out.

graph-corona

4. People are comparing this thing to the Spanish Flu of 1918, the most lethal pandemic in absolute terms in human history. There is no comparison. That pandemic happened at the end of a world war with medical infrastructure destroyed all over Europe. Plus it killed primarily young people with strong immune systems since it was primarily the overreaction of immune systems that killed those infected, or so I read. Most people’s immune systems are fine. The Spanish Flu was sort of like an inverse flu. This one is a normal flu that is most dangerous primarily for the sick and elderly.

dont-fear-the-coronavirus-reaper-more-macau-bellObviously any outbreak is bad and scary, and I wish a quick recovery for those afflicted. But once markets realize the current bubble is not popping because of coronavirus, the economy will open right back up and the bubble will then continue on its merry way. I’m not bullish on Macau fundamentally, but all the money being pulled out now in a panic will eventually plow right back in.

If you want to try to make a buck off those panicking on a short term trade, set aside a small portion of your free cash, say 5%. Slowly scale in to Macau, either via BJK or a mix of casinos of your choice, over the next few days/weeks – BUT!

One big BUT before you take the trade

There’s a big BUT here that could upend this whole thesis. Nothing to do with coronavirus, but definitely keep it on your radar. Watch out for February 3rd and 11th, the respective dates of the Iowa caucuses and New Hampshire primaries for the Democratic nomination. If Iowa and New Hampshire “Feel the Bern” and Bernie “Lenin” Sanders wins both (he’s ahead in both states), stocks might actually crash longer term. That could cause a real justified panic, much more justified than this coronavirus thing. So just keep that in mind, and maybe wait until after February 11th to start buying the dip here and hope Uncle Joe Biden doesn’t say anything too creepy about his hairy legs in the meantime.

Me, personally, I’m not touching this. Bernie Sanders is just way too horrifying.

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